The Dow finished the day down by 1,032.95 points, or 4.15% at 23,849.23 — down 2,767 points, or 10.4%. A drop of 10% from its high of 26,616 on Jan. 26 is considered a correction. The S&P 500 tumbled 2.96%, erasing its gains for the year. Ten-year Treasury yields flirted with four-year highs.

From a risk manager’s perspective, a bank is a derivative on interest rates. Similarly, RIA practices can be viewed as a derivative on stock and bond markets. Here’s a quick way to estimate the sensitivity of your practice to markets.

There was this fellow named Edmund. Edmund's high-priced education had taught him the virtues of diversification. His job as a banker paid him a nice sum of cash every month, plus bonus; he had bought a house, and his retirement account was comprised of a diversified mix of domestic and international stocks. On his office wall was hanging this quote from the Merchant of Venice: "My ventures are not in one bottom trusted, nor to one

Diversification is achieved when the gains in certain holdings of your portfolio offset the losses of other holdings. It means that you don’t have all (or most) of your eggs in the same basket. Diversification is critical because it reduces the impact of (bad) luck and isolated events on the overall performance of your portfolio. Check out how to quantify portfolio diversification: Are all your eggs in the same basket?